Consumer Review Freedom Act of 2015 Protects the Right to Post Negative Reviews

A new bill, the Consumer Review Freedom Act of 2015, is currently pending in Congress which would prohibit the use of “non-disparagement” clauses in consumer contracts.

The legislation is intended to prohibit companies from penalizing customers who write negative online reviews.

As we have previously discussed on the Scarinci Hollenbeck Business Law News Blog, attempts to control online reviews are largely unsuccessful and can often lead to both reputational harm and legal liability. In 2013, the Attorney General of New York penalized nineteen companies who engaged in “astroturfing,” defined as “[t]he practice of preparing or disseminating a false or deceptive review that a reasonable consumer would believe to be a neutral, third-party review.”

In a recent federal enforcement action, the Federal Trade Commission (FTC) charged a California shipping company with deceptive advertising after the company failed to disclose that it gave customers a $50 discount as long as they agreed to review AmeriFreight’s services. According to the FTC, AmeriFreight ran afoul of the agency’s requirement that consumers have a right to know when there’s a material connection between an advertiser and an endorser.

Origins and support of the bill

The Consumer Review Freedom Act of 2015 (available here) was introduced by four California lawmakers, Reps. Darrell Issa (R-Calif.), Eric Swalwell (D-Calif.), Blake Farenthold (R-Texas), and Brad Sherman, (D-Calif.), and largely tracks legislation approved by that state in 2014. It would void any contract clause that “prohibits or restricts the ability of a person who is a party to the form contract to engage in a covered communication,” or which “imposes a penalty or fee” against that person.

As an added measure, the proposed federal statute also prohibits contract clauses that purport to establish any intellectual property rights over the customer’s lawful communications. In several cases, companies have attempted to use their consumer contracts to dispel criticism by asserting a copyright interest in online reviews. Businesses that violate either provision of the Consumer Review Freedom Act could face fines of up to $16,000 per day.

Attempts to pass similar legislation have been unsuccessful. However, the current bill has bi-partisan support, as well the backing of Rep. Issa, who chairs the powerful House Oversight and Government Reform Committee. We will continue to track the status of the bill and provide updates as they become available.

In the meantime, businesses may still want to reconsider the use of non-disparagement clauses or assignment of copyright interest to control online reviews. Even in the absence of state or federal laws restricting their use, courts have been reluctant to enforce them. In addition, the negative publicity that accompanies such as action generally outweighs any potential monetary recovery.